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Getting Ready for the Next Proxy Season

2018 FTSE 100 Proxy Review Getting Ready for the Next Proxy Season

In preparation for the forthcoming 2019 proxy season, CGLytics is releasing its third consecutive annual FTSE 100 proxy review, providing boards with key takeaways and drawing from the 2018 season to ensure companies are adequately prepared to engage.

The 2018 proxy season saw an increasing focus from investors on key governance matters such as Total Number of Resolutions disclosure quality, director election, board Opposing Director Re-election effectiveness, CEO pay and Environmental Social Governance (ESG) practices. Although companies (all UK companies): have been improving their disclosure, the need for transparency continued to be an important theme.

The season also saw a higher dissent from 2017 2018 shareholders on director re-elections than previous years. Shareholders were sending a strong message to directors that they will be held directly 38 80 accountable for their individual actions. The public register, which is compiled by the Investment Source: Investment Association Public Register Association in light of growing revolt in corporate governance and general culture, showed that the number of resolutions opposing individual director re-elections increased from 38 in 2017 to 80 in 2018 in the . The FTSE 100, however, Insight: showed a growth of 20% relative to the number of resolutions in 2017. Specifically, in the FTSE 100, 6 Shareholders are looking closely at companies in the index recorded more than 20% in the number of appointments held dissenting votes to re-elect their director(s) to the by directors and whether directors board compared to 5 in 2017. These companies could be “overboarded”. are The plc, AstraZeneca plc, plc, Sky plc, plc, and plc. The main Overboarding and having the right board reason for the shareholder revolts is the number composition, which includes diversity, continued to of directorships held by individual members of the hold shareholders’ interest. Investors were looking board. Shareholders questioned whether a director closely at the number of appointments held by with several board appointments can really fulfil his directors, in addition to the mix of skill sets, tenure or her duties. and gender diversity at the board level.

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2018 Proxy Season Highlights

Last season brought some interesting highlights as Companies with Greatest Misalignment in 2017: the executive remuneration policies were due for renewal and up for voting. CEO pay continued to be 1. WPP plc an area of concern for shareholders as pay equity, 2. CRH plc transparency, executive pay levels, and pay for performance continued to ratchet higher. 3. Sky plc

• The average votes in favour of the remuneration report fell slightly lower than the Companies with Greatest Misalignment previous year with corporations experiencing on a Three-Year Basis (2015-2017): significant push back on remuneration policies 1. Shire plc that investors felt lacked clarity and enough disclosures. 2. plc 3. WPP plc • Investors paid more attention in setting a ceiling for total realised pay that directors could earn and engaged actively on the performance metrics of company remuneration plans. code also added that, as a measure, formulaic calculations of performance-related pay should • A study performed by CGLytics showed that almost be rejected. To reinforce the role of directors in a third of the FTSE 100 companies have significant protecting shareholder interests, directors were also misalignment between pay and performance encouraged to exercise independent judgement on a one and three year basis. Please refer to and discretion when authorising remuneration the Appendix for CGLytics’ annual FTSE 100 Pay outcomes, taking account of company and individual for Performance Overview. It outlines the total performance, along with wider circumstances. CEO realised compensation and company Total Shareholder Return (TSR) performance for all FTSE Thirty-three companies of the FTSE 100 100 constituents against their peers in the index. index sought a binding shareholder approval for their remuneration policies, valid for at most three The Landscape years. Investors generally questioned the earning The United Kingdom has been at the forefront potentials in short-term incentive plans presented of shareholders’ concern over excessive pay in some of the remuneration policies for as investors over the years have voted against approvals. For example, at plc, issuers’ advisory remuneration reports. To the board’s decision to increase the annual address these concerns, the Financial Reporting bonus stretch or maximum from 100% to 150% Council (FRC) earlier in July 2018 issued a revised cost the board a dissent of around 25% on their Corporate Governance Code, which stressed remuneration policy. Other companies that faced that remuneration committees should consider more than a 20% vote against their remuneration workforce remuneration and related policies when policy were plc and plc. designing director remuneration. The revised Royal Mail plc received the highest shareholder

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Support Level: Advisory Votes for Remuneration Report

100 90 79 80 75 70 60 50 40 30 20 20 16 10 2 3 3 2 0 Support Level Support Level Support Level Support Level > 90% > 89 - 70% > 69 - 60% < 60%

Performance Year: 2016 2017 revolt on their remuneration report for the 2017 performance year compared to other FTSE 100 Insight: companies. With over 70% of the votes against the advisory resolution for the Directors’ Remuneration Shareholders cited alignment Report, the shareholders voiced their concern between compensation and saying the company has not been enough performance as their main concern about contractual entitlements of Moya Greene, for voting against remuneration the retiring CEO, and the remuneration of Rico related resolutions. Back, the new Group CEO.

Persimmon plc is the company that received the second highest shareholder revolt with almost 49% regarding the directors’ remuneration and advocated for: of votes against the Directors’ Remuneration Report. lower increase for directors’ remuneration, preference for The shareholders were concerned about the level of part of the increase to be delivered through long-term pay remuneration that resulted from the vesting of 2012 and tougher executive shareholding guidelines. Several awards, saying that there was no cap. shareholders asked about the mix of performance metrics The other companies which received shareholder revolts for the Performance Share Plan, as CRH uses KPIs other of more than 30% on their remuneration reports were than TSR. The company argued that they always strive Astra Zeneca plc, BT Group plc, Unilever plc and CRH plc. to balance the external shareholder metric (TSR) and an Shareholders of CRH plc communicated their concerns internal metric that is more within management’s control.

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Overview of Pay vs. Total Shareholder Return The graphs below illustrate the alignment between TSR demonstrates a high volatility and a decrease the average realised pay and TSR of the FTSE 100 while the average realised pay fluctuates along the companies from 2009 until 2017. The absolute value years but with less volatility and an increase from graph shows the average value of realised pay and 2009 to 2017. The average TSR for the FTSE 100 TSR each year, while the relative growth graph decreased to 8% in 2017 while the average total illustrates the year over year change. The average realised pay increased by 5.5% to GBP 4.9 million.

Pay vs. TSR: Absolute Growth

25 6,000,000 20 5,000,000 15 4,000,000 % 10 GBP 5 3,000,000 0 2,000,000 -5 1,000,000 -10 0 2009 2010 2011 2012 2013 2014 2015 2016 2017

Pay TSR000

Pay vs. TSR: Relative Growth 25 20 15 10 TRC 5 Growth % 0 TSR Delta -5 -10 -15 -20 2009 / 2010 / 2011 / 2012 / 2013 / 2014 / 2015 / 2016 / 2010 2011 2012 2013 2014 2015 2016 2017

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Compensation Mix Design: Fixed vs. Variable The FTSE 100 CEO compensation structure against the previous year. However, there is still continues to evolve. We saw a strong emphasis on further work to be done. The charts below show rebalancing CEO pay structure to be more long- that when reviewing changes in compensation term oriented in the 2017 performance year. Base structure over a longer period (from 2009 to 2017), salary fell from 20.1% in 2016 to 18.6% in 2017, there actually has been a shift from long-term and short-term incentives fell from 23% to 22.9% incentives to fixed and short-term incentives.

18% 19%

2009 2017 21% 23% 61% 58%

Salary Realised STI Realised LTI Salary Realised STI Realised LTI

Average CEO Realised Pay Breakdown 100%

80%

60%

40%

20%

0 2009 2010 2011 2012 2013 2014 2015 2016 2017

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Compensation Mix Design: Pay for Performance Fixed vs. Variable The annual pay for performance study performed by Conservative Aligned Misaligned CGLytics demonstrates that there is still a material misalignment between pay and performance in the FTSE 100 companies.

Pay for Performance Review: 2017

• 33% of the companies still display a pay for performance misalignment. 33% 34%

• 34% of the companies display a good alignment. 2017

• 32% of the companies show a conservative pay level for the performance generated when 32% HSBC compared to the other FTSE 100 companies. Lloyds British Imperial Tobacco % Randgold Pay for Performance Review: Three-Year Basis

• On a three-year basis, 29% of the companies display misalignment. 29% • 42% of the companies display a good alignment. Three 42% Year Basis • 28% of the companies show a conservative pay (2015 - 2017) Realised LTI level for the performance generated relative to FTSE 100 companies. 28%

British banks including HSBC and Lloyds show pay for performance misalignment when measured over a one-year period and continue to be misaligned CGlytics‘ pay for performance study finds 29% of the over a three-year period. companies still show a misalignment over a three-year British American Tobacco, Randgold and Experian period. plc were companies displaying misalignment The charts on the next page display CGLytics’ pay for measured over a one-year period, though they performance analysis for the FTSE 100 CEO pay and demonstrate good alignment on a three-year basis. % TSR performance over a one- and three-year period. Companies like Melrose, Carnival, RSA Insurance The companies that are situated within the grey and WM Morrison are displaying a misalignment area are considered companies that have a strong when measured over a one-year period. However, alignment between pay and performance. The over a period of three years, their CEO pay falls into companies above and below the grey area show a the lower quartile despite strong TSR performance pay for performance misalignment. The entire index when bench-marked against other FTSE 100 companies. constituents were used for this analysis.

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2017 Pay for Performance Alignment CEO Total Realised Compensation vs Total Shareholder Return

Below Median TSR Above Median TSR x Above Median Compensation Above Median Compensation Melrose Berkeley WPP Carnival plc RELX BAT SKY Prudential AstraZeneca Benckiser Coca Cola HBC BP Shell CRH HSBC Unilever Randgold Experian Anglo Direct Compass Lloyds Bank Ashtead GlaxoSmithKline RSA Wm Morrison Barratt LSE ABF Rentokill DS Smith TUI Informa Consolidated Taylor Imperial NMC Shire plc EAT DCC Diagio Smith & Nephew G4S plc Old Mutual Legal Sage Croda Halma J Sainsbury BHP Grid ITV St James’ BT SSE Hotels Persimmon Micro Focus Smurfit Matthey Mondal BAE Chartered

Total Realised Compensation - Percentile Rank - Percentile Realised Compensation Total Smiths Rolls Royce Pearson Paddy Centrica Kingfisher Ferguson RBS Marks & Spencer Mail

0th 50th 100th Antofagasta Next easyJet Mediclinic Harreaves Admiral Fresnillo 0th Below Median TSR 50th Above Median TSR 100th Below Median Compensation Below Median Compensation Percentile Rank

2017 3 Year Pay for Performance Alignment CEO Total Realised Compensation vs Total Shareholder Return

Below Median TSR Above Median TSR Above Median Compensation Above Median Compensation WPP Reckitt Benckiser Berkeley RELX Prudential BP Lloyds Banking Sky AstraZeneca Burberry HSBC Shell Unile- Shire LSE DS Smith 3i GlaxoSmithKline Barratt Randgold BAT easyJet TUI Compass Taylor Barclays Schroders ABF Direct ITV Vodafone Ashtead British Land Smurfit EAT Consolidated Experian Bunzl Hotels Carnival plc Imperial Anglo Smith & Nephew CRH BT Legal Diagio RioTinto Ferguson Hargreaves Next Smiths Grid Old Mutual Aviva BAE Centrica Whitbread Tesco plc EVRAZ BHP Intertek Rentokill RBS DCC CRH Marks & Spencer Standard Life Aberdeen United Utilities Chartered RSA G4S SEGRO Croda St James’s Informa Halma Persimmon Coca Cola HBC Total Realised Compensation - Percentile Rank - Percentile Realised Compensation Total J Sainsbury Sage SSE Rolls Royce Severn Trent Kingfisher NMC Wm Morrison Mail Pearson Matthey Paddy

0th 50th 100th Micro Focus Glencore Melrose Antofagasta Fresno Mediclinic Admiral 0th Below Median TSR 50th Above Median TSR 100th Below Median Compensation Below Median Compensation Percentile Rank

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The company with the highest CEO compensation remuneration report, shareholder votes in favour were is plc. The CEO Simon Peckham’s 95%. total realised compensation was GBP 42.8 million with Melrose’s TSR being 9%, earning the Housebuilder Persimmon was heavily and negatively company a performance percentile rank of 37 in the index featured in the news during the proxy season for a large for the financial year under consideration. Over a three- payout that became available to its CEO, demonstrating year period, the CEO’s total realised compensation grew the risks of pay for performance misalignment. Following by more than 45 times, putting the company at the 100th public and political backlash, Persimmon announced percentile despite the fact that TSR ranked at the 33rd that “by mutual agreement and at the request of the percentile with a negative change of 3%. Though when Company, Jeff Fairburn, Group Chief Executive, is to looking at the cumulative value of the TSR, it grew with step down.” In 2012, shareholders approved a long- 344% over a three-year period, meaning an investment term incentive plan, which did not have a cap, leading made in the company at GBP 100 in 2015 would be worth to potential earnings of over GBP 100 million ofto the GBP 444 in 2017. This is the second highest investment CEO. There was unrest between the board and investors, return in the index; yet, almost 23% of shareholders still leading to the resignation of the Chairman of the Board, voted against the company’s remuneration during the Nicholas Wrigley, and Senior Independent Director, 2018 proxy% season. Jonathan Davie, who was also the Remuneration Committee Chair. A significant component of the GBP NMC Health plc, a healthcare chain based in 100-million package was options, which were vested but the United Arab Emirates, had a percentile not exercised by the CEO during the financial year. This ranking of 57 in the FTSE 100 index for its CEO led to a total realised pay for the CEO of approximately compensation. In 2017, the Chief Executive’s total GBP 2.2 million, which ranked at the 30th percentile for realised compensation was GBP 3.9 million with the index. TSR was 63%, which was also ranked 98th in Total Shareholder Return at 88%, which placed the the index. From 2015 to 2017, total realised compensation healthcare company at the forefront of the index grew by 16% and TSR by 28%. Three-year TSR for the rankings. Total realised compensation grew by company is 105%, which means a GBP 100 investment in 493% from 2015 till end of 2017, whiles TSR the company in 2015 to be worth GBP 205 in 2017. The increased by 4%. The cumulative TSR from 2015 to company’s annual report on remuneration for 2017 was 2017 is 538%, which means that GBP 100 narrowly passed by votes with around 52%. Another 31% invested in NMC in 2015 would be worth GBP 638 of shareholders abstained from voting on the resolution. in 2017. This is the highest investment return in the index. For their 2017 remuneration report, shareholders voted in favour by 93%.

Centrica plc emerged as the company with the lowest investment% return in the index. The Centrica CEO’s total realised compensation was GBP 1.7 million, which places the company in the 15th percentile of the index. TSR for the 2017 financial year was -38%, which ranked the lowest in the index. According to our analysis, an investment worth GBP 100 in 2015 would be worth GBP 58.23 in 2017. This means that the investment has been depleted by 42%. Yet, for their 2017

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2019 Proxy Season: that their directors have the right skills and that their Key Governance Themes boards are diverse—also that there are no conflicts of interest or overboarding exposure. These governance for Boards matters will be closely monitored by investors The forthcoming season will continue to push when companies are putting forward directors for boards of companies to be well informed on their nomination and election. governance practices. Boards should be ready to engage early with their investors, who continue • CEO succession and board evaluation. Chairs of to push companies to reform their practices and the Board and their Nomination and Governance mitigate exposure to governance risks. committees should be ready to provide a plan for CEO succession to mitigate business continuity risk; Over the last few years, we have seen investors they must also demonstrate a robust process and expanding their Environmental, Social and system for evaluating the performance of the board. Governance (ESG) research capabilities to aid their engagement and voting decisions. Boards of • CEO pay. CEO pay will continue to be companies can expect their investors to become scrutinized. Compensation committees will increasingly more sophisticated in assessing their need to demonstrate a clear independence— governance practices. A constructive dialogue and will need to possess the right expertise underpinned by powerful intelligence will support when engaging with their company boards in these engagements and in obtaining shareholders and other stakeholders. shareholder buy-in during the early stages of the Compensation policies and practices should proxy season. be designed to support strategy and promote long-term sustainable success. It should be aligned to company purpose and values and be What themes can boards expect in clearly linked to the successful delivery of the the 2019 season? company’s long-term strategy. Compensation committees should be ready to engage with • Transparency. There continues to be a their shareholders on the sustainability of their push for transparency in engagement and company’s compensation practices (e.g., pay disclosures. Boards will need to be prepared equality and alignment between compensation to better disclose and engage on their board and performance). composition, say on pay proposals, and • ESG. Investors will continue to evaluate companies’ governance decisions (particularly those related progress on their environmental, social, and to ESG). governance (ESG) practices. Boards should be • Board refreshment, gender diversity and board prepared to disclose how ESG practices are composition. In the last proxy season, investors embedded in the company’s long-term plan for value actively engaged with boards on these key creation. governance matters. We expect this to continue in • Proactive shareholder engagement. The the upcoming season as investors are looking to importance of boards having a timely and open further influence board strategy and composition for dialogue with their shareholders will be critical. their tie to company performance. Nomination and Investors are looking for boards to engage Governance committees will need to demonstrate proactively, and not when a negative vote has

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been issued or recommended.

With the governance landscape growing increasingly complex, boards need to ensure they have access to the same level of information as their shareholders. Having the right data at your fingertips has become key to making informed decisions and conducting better engagements in this active shareholder environment.

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CGLytics - FTSE100 CEO P4P OVERVIEW (1 to 25)

Compensa- tion Report 2017 Δ 2015-2017 2015-2017 AGM Vote Outcomes

FTSE 100 Total 3YR Total 2017 Realised Com- Growth Realised year-end value Perfor- Δ 2015- Compen- Perfor- Compen- Perfor- For

(2015) Compen- pen- 2015- Compen- of 100 GBP 2017 TSR mance 2017 sation mance 3Y TSR sation mance % sation sation 2017 sation investment Ranking TSR Ranking Ranking Ranking Ranking

Ranking 2017 (million Ranking TRC (million made January GBP) GBP) 1st, 2015

1 (73) Old Mutual plc 3.4 16% 46 46 -13% 18% 37 65 9.6 37% 46 44 137 71.39

2 (46) Severn Trent plc 2.0 1% 23 23 -3% -12% 46 20 6.2 21% 15 33 121 99.34

3 (15) Pearson plc 1.5 -5% 12 11 -19% 0% 33 42 4.2 -27% 9 2 73 99.36

4 (91) 6.1 37% 80 81 87% 111% 84 99 15.6 41% 71 48 141 90.35

5 (8) The Berkeley Group Holdings plc 27.5 56% 99 97 52% -1% 75 39 53.4 94% 99 86 194 83.91

6 (67) G4S plc 3.4 17% 48 50 38% 33% 70 88 9.0 7% 40 21 107 97.36

7 (85) Marks & Spencer Group plc 1.3 -5% 8 10 -71% -3% 3 35 7.2 -23% 22 4 77 98.70

8 (7) BAE Systems plc 2.1 0% 24 21 -35% -10% 24 24 8.6 37% 35 43 137 98.40

9 (54) Intertek Group plc 11.6 51% 95 92 500% 30% 98 85 18.4 134% 79 94 234 85.38

10 (26) 3i Group plc 6.8 34% 82 79 56% 22% 76 74 18.5 127% 80 93 227 94.29

11 (2) Legal & General Group plc 3.3 17% 45 48 -18% 4% 34 47 10.6 29% 52 39 129 98.17

12 (41) Land Securities Group plc 1.6 -2% 14 17 -43% -20% 12 14 5.9 -4% 14 12 96 98.14

13 (-) Mediclinic International plc 0.9 -15% 2 5 12% N/A 59 N/A 2.5 N/A 1 N/A N/A 93.54

14 (77) plc 5.4 28% 74 70 28% 30% 66 84 12.9 82% 61 78 182 90.85 Strong Alignment Alignment Strong 15 (43) Coca-Cola HBC AG 9.3 39% 90 85 276% 19% 96 68 13.7 109% 65 91 209 98.95

16 (18) 1.6 0% 13 19 0% 6% 48 31 5.3 8% 11 22 108 98.05

17 (16) plc 2.1 -1% 26 18 83% 20% 81 70 4.8 -2% 10 14 98 94.60

18 (9) United Utilities Group plc 2.0 -4% 22 13 -36% -10% 21 25 7.5 3% 24 19 103 99.00

London Stock Exchange Group 19 (38) 4.7 32% 67 77 -42% 7% 16 48 18.8 77% 81 72 177 94.09 plc

20 (39) DS Smith Plc 4.2 31% 64 73 -58% 4% 4 44 19.4 77% 83 71 177 96.79

21 (21) 1.2 -3% 6 15 -74% -15% 2 18 7.6 -22% 30 5 78 99.25

22 (66) Unilever plc 7.4 29% 83 72 -7% 15% 43 60 23.5 72% 88 69 172 97.19

23 (-) Paddy Power Betfair plc 1.8 3% 16 28 N/A -92% N/A 0 3.2 99% 3 87 199 80.40

24 (27) The British Land Company plc 2.3 15% 31 45 -29% 11% 30 54 7.3 1% 23 18 101 95.46

25 (74) Centrica plc 1.7 -38% 15 0 43% 31% 73 87 7.5 -42% 28 0 58 95.26

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CGLytics - FTSE100 CEO P4P OVERVIEW (26 to 50)

Compensa- Compensa- tion Report tion Report 2017 Δ 2015-2017 2015-2017 AGM Vote 2017 Δ 2015-2017 2015-2017 AGM Vote Outcomes Outcomes

FTSE 100 FTSE 100 Total 3YR Total 2017 Total 3YR Total 2017 Realised Com- Growth Realised year-end value Realised Com- Growth Realised year-end value Perfor- Δ 2015- Compen- Perfor- Compen- Perfor- For Perfor- Δ 2015- Compen- Perfor- Compen- Perfor- For

Compen- pen- 2015- Compen- of 100 GBP (2015) Compen- pen- 2015- Compen- of 100 GBP 2017 TSR mance 2017 sation mance 3Y TSR sation mance % 2017 TSR mance 2017 sation mance 3Y TSR sation mance % sation sation 2017 sation investment sation sation 2017 sation investment Ranking TSR Ranking Ranking Ranking Ranking Ranking TSR Ranking Ranking Ranking Ranking

(million Ranking TRC (million made January Ranking 2017 (million Ranking TRC (million made January GBP) GBP) 1st, 2015 GBP) GBP) 1st, 2015

1 (73) Old Mutual plc 3.4 16% 46 46 -13% 18% 37 65 9.6 37% 46 44 137 71.39 26 (72) Bunzl plc 2.7 0% 36 20 -51% -9% 9 28 10.7 24% 53 36 124 98.19

2 (46) Severn Trent plc 2.0 1% 23 23 -3% -12% 46 20 6.2 21% 15 33 121 99.34 27 (10) Whitbread plc 1.9 9% 19 35 2% 15% 52 61 5.9 -11% 13 9 89 99.13

3 (15) Pearson plc 1.5 -5% 12 11 -19% 0% 33 42 4.2 -27% 9 2 73 99.36 28 (80) plc 1.9 8% 18 34 -48% 19% 11 69 6.7 50% 17 54 150 98.14

4 (91) Anglo American plc 6.1 37% 80 81 87% 111% 84 99 15.6 41% 71 48 141 90.35 29 (58) DCC plc 3.6 26% 52 69 61% -36% 77 6 10.6 120% 51 92 220 94.72

5 (8) The Berkeley Group Holdings plc 27.5 56% 99 97 52% -1% 75 39 53.4 94% 99 86 194 83.91 30 (35) J Sainsbury plc 3.1 1% 41 22 31% -9% 68 27 7.1 12% 21 27 112 95.31

6 (67) G4S plc 3.4 17% 48 50 38% 33% 70 88 9.0 7% 40 21 107 97.36 31 (29) Schroders plc 5.4 21% 76 57 8% 7% 56 51 14.0 43% 66 51 143 95.83

7 (85) Marks & Spencer Group plc 1.3 -5% 8 10 -71% -3% 3 35 7.2 -23% 22 4 77 98.70 Alignment Strong 32 (86) Smith & Nephew plc 3.6 7% 51 32 -37% 4% 20 46 12.2 15% 60 29 115 97.29

8 (7) BAE Systems plc 2.1 0% 24 21 -35% -10% 24 24 8.6 37% 35 43 137 98.40 33 (48) TUI AG 4.2 38% 63 83 92% 23% 87 76 15.6 60% 70 62 160 92.01

9 (54) Intertek Group plc 11.6 51% 95 92 500% 30% 98 85 18.4 134% 79 94 234 85.38 34 (49) Royal Mail plc 1.4 3% 9 29 -7% -4% 44 32 4.4 22% 8 34 122 29.83

10 (26) 3i Group plc 6.8 34% 82 79 56% 22% 76 74 18.5 127% 80 93 227 94.29 35 (94) Burberry Group plc 3.1 23% 40 61 -35% 48% 23 92 22.1 19% 87 30 119 89.24

11 (2) Legal & General Group plc 3.3 17% 45 48 -18% 4% 34 47 10.6 29% 52 39 129 98.17 36 (84) BHP Billiton plc 3.1 22% 39 60 1% 60% 51 94 8.8 35% 38 42 135 97.75

12 (41) Land Securities Group plc 1.6 -2% 14 17 -43% -20% 12 14 5.9 -4% 14 12 96 98.14 37 (4) Barratt Developments plc 4.9 49% 68 91 -49% 11% 10 53 17.6 63% 77 66 163 99.30

13 (-) Mediclinic International plc 0.9 -15% 2 5 12% N/A 59 N/A 2.5 N/A 1 N/A N/A 93.54 38 (61) Rentokil Initial plc 4.4 45% 66 90 164% 11% 92 55 11.6 175% 56 98 275 96.91

14 (77) Ashtead Group plc 5.4 28% 74 70 28% 30% 66 84 12.9 82% 61 78 182 90.85 39 (56) The plc 3.3 25% 44 67 72% -8% 80 29 6.9 84% 19 80 184 98.12

15 (43) Coca-Cola HBC AG 9.3 39% 90 85 276% 19% 96 68 13.7 109% 65 91 209 98.95 40 (6) plc 3.6 33% 53 78 63% 29% 78 82 9.9 61% 49 64 161 97.22

16 (18) Kingfisher plc 1.6 0% 13 19 0% 6% 48 31 5.3 8% 11 22 108 98.05 41 (51) JUST EAT plc 3.7 34% 54 80 -8% -26% 41 9 16.6 153% 76 96 253 98.34

17 (16) Johnson Matthey plc 2.1 -1% 26 18 83% 20% 81 70 4.8 -2% 10 14 98 94.60 42 (20) Mondi plc 2.1 19% 27 53 -57% -11% 5 21 12.1 99% 59 88 199 94.88

18 (9) United Utilities Group plc 2.0 -4% 22 13 -36% -10% 21 25 7.5 3% 24 19 103 99.00 43 (92) Rio Tinto plc 3.4 31% 47 74 -14% 62% 35 96 9.3 54% 44 56 154 89.68

London Stock Exchange Group 19 (38) 4.7 32% 67 77 -42% 7% 16 48 18.8 77% 81 72 177 94.09 plc 44 (59) Micro Focus International plc 2.2 20% 28 56 8% -32% 57 8 5.4 156% 12 97 256 93.13

20 (39) DS Smith Plc 4.2 31% 64 73 -58% 4% 4 44 19.4 77% 83 71 177 96.79 45 (28) plc 4.1 44% 59 89 -36% -11% 22 22 14.9 79% 69 74 179 98.20 Conservative Practice Conservative

21 (21) Next plc 1.2 -3% 6 15 -74% -15% 2 18 7.6 -22% 30 5 78 99.25 46 (88) plc 2.0 18% 21 51 -43% 53% 14 93 7.1 -11% 20 8 89 96.66

22 (66) Unilever plc 7.4 29% 83 72 -7% 15% 43 60 23.5 72% 88 69 172 97.19 47 (11) 1.5 10% 10 41 -29% 7% 29 49 9.2 55% 43 57 155 98.61

International Consolidated 23 (-) Paddy Power Betfair plc 1.8 3% 16 28 N/A -92% N/A 0 3.2 99% 3 87 199 80.40 48 (19) 4.1 52% 62 94 -9% 25% 39 78 11.6 45% 57 52 145 95.07 Airlines Group, S.A.

24 (27) The British Land Company plc 2.3 15% 31 45 -29% 11% 30 54 7.3 1% 23 18 101 95.46 49 (53) SEGRO plc 3.6 39% 50 84 86% 19% 82 67 9.1 84% 42 81 184 97.42

25 (74) Centrica plc 1.7 -38% 15 0 43% 31% 73 87 7.5 -42% 28 0 58 95.26 50 (45) St. James's Place plc 2.6 25% 35 68 -14% -2% 36 36 8.2 65% 33 67 165 99.58

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CGLytics - FTSE100 CEO P4P OVERVIEW (51 to 75)

Compen- sation Report 2017 Δ 2015-2017 2015-2017 AGM Vote Outcomes

FTSE 100 3YR 2017 Total Total year-end Realised Com- Growth Perfor- Δ 2015- Compen- Perfor- Realised Compen- Perfor- value of 100 For (2015) Compen- pen- 2015- 2017 TSR mance 2017 sation mance Compen- 3Y TSR sation mance GBP invest- % sation sation 2017 Ranking TSR Ranking Ranking sation Ranking Ranking ment made Ranking 2017 (million Ranking TRC (million January 1st, GBP) GBP) 2015

51 (70) EVRAZ plc 4.1 68% 60 99 89% 120% 85 100 9.9 141% 50 95 241 95.79

52 (65) NMC Health Plc 3.9 88% 57 100 493% 4% 97 45 8.4 538% 34 100 638 92.68

53 (44) plc 3.2 41% 43 86 33% 24% 69 77 7.7 78% 32 73 178 91.28

54 (32) Standard Life Aberdeen plc 1.9 24% 20 64 -39% 21% 19 72 7.6 28% 29 37 128 97.36

Intercontinental Hotels Group 55 (5) 2.4 32% 32 76 -9% 27% 40 80 8.8 100% 37 89 200 82.33 plc

56 (52) 3.1 42% 42 87 39% 14% 71 59 7.6 91% 31 83 191 96.74

57 (64) plc 0.4 16% 0 47 -1% -18% 47 15 1.1 82% 0 77 182 90.36

58 (33) 0.8 19% 1 54 0% 26% 49 79 2.5 92% 2 84 192 99.79

59 (24) Group plc 2.2 38% 29 82 -52% 9% 7 52 9.1 46% 41 53 146 88.20

60 (14) Rolls-Royce Holdings plc 1.9 29% 17 71 151% 61% 91 95 4.3 3% 7 20 103 98.87

The Royal Bank of Scotland

Conservative Practice Conservative 61 (71) 1.5 24% 11 65 -41% 47% 18 90 7.5 -30% 27 1 70 99.18 Group plc

62 (60) 2.2 63% 30 98 16% 28% 60 81 6.3 105% 16 90 205 51.48

63 (13) Glencore plc 1.1 43% 5 88 9% 111% 58 98 3.4 41% 4 47 141 98.94

64 (12) 1.3 52% 7 95 17% 89% 61 97 3.6 39% 5 45 139 99.08

65 (63) plc 1.0 52% 3 93 -24% -1% 32 37 4.3 92% 6 85 192 96.57

66 (40) easyJet plc 1.0 54% 4 96 -77% 47% 1 91 7.5 -1% 26 15 99 99.58

67 (96) HSBC Holdings plc 7.5 24% 84 63 -4% 30% 45 86 24.0 52% 90 55 152 97.00

68 (78) Vodafone Group plc 8.0 25% 87 66 63% 20% 79 71 18.9 24% 82 35 124 97.12

69 (57) Informa plc 4.1 9% 61 39 102% -25% 88 11 9.4 83% 45 79 183 93.21

70 (36) 3.1 -3% 38 14 41% -10% 72 23 9.0 10% 39 23 110 96.94

71 (34) SSE plc 2.5 -10% 33 7 50% -9% 74 26 6.8 -3% 18 13 97 97.85

72 (22) RSA Insurance Group plc 5.1 11% 71 42 106% 12% 89 57 11.2 55% 55 58 155 96.63 Misaligned

73 (95) Lloyds Banking Group plc 5.2 14% 73 44 -43% 16% 13 64 20.4 1% 86 17 101 79.22

74 (87) Tesco PLC 3.7 2% 55 24 -8% 23% 42 75 12.0 11% 58 26 111 96.64

75 (25) BT Group plc 2.5 -22% 34 2 -56% -43% 6 3 9.8 -24% 48 3 76 65.84

cglytics.com 13 Getting Ready for the Next Proxy Season

CGLytics - FTSE100 CEO P4P OVERVIEW (76 to 99)

Compen- Compensa- sation tion Report 2017 Δ 2015-2017 2015-2017 Report 2017 Δ 2015-2017 2015-2017 AGM Vote AGM Vote Outcomes Outcomes FTSE 100 FTSE 100 3YR 2017 Total 3YR Total 2017 Total Total year-end Realised Com- Growth Realised year-end value Realised Com- Growth Perfor- Δ 2015- Compen- Perfor- Compen- Perfor- For Perfor- Δ 2015- Compen- Perfor- Realised Compen- Perfor- value of 100 For

(2015) Compen- 2017 TSR pen- 2015- Compen- of 100 GBP Compen- pen- 2015- mance 2017 sation mance 3Y TSR sation mance % 2017 TSR mance 2017 sation mance Compen- 3Y TSR sation mance GBP invest- % sation sation 2017 sation investment sation sation 2017 Ranking TSR Ranking Ranking Ranking Ranking Ranking TSR Ranking Ranking sation Ranking Ranking ment made (million Ranking TRC (million made January (million Ranking TRC Ranking 2017 (million January 1st, GBP) GBP) 1st, 2015 GBP) GBP) 2015

51 (70) EVRAZ plc 4.1 68% 60 99 89% 120% 85 100 9.9 141% 50 95 241 95.79 76 (93) Randgold Resources Limited 6.3 17% 81 49 2% 21% 53 73 20.4 74% 85 70 174 92.28

52 (65) NMC Health Plc 3.9 88% 57 100 493% 4% 97 45 8.4 538% 34 100 638 92.68 77 (42) ITV plc 2.9 -15% 37 4 -32% -49% 27 1 11.0 -8% 54 10 92 96.23

53 (44) Croda International plc 3.2 41% 43 86 33% 24% 69 77 7.7 78% 32 73 178 91.28 78 (83) AstraZeneca plc 9.4 21% 91 58 21% 15% 63 63 30.6 29% 93 38 129 65.06

54 (32) Standard Life Aberdeen plc 1.9 24% 20 64 -39% 21% 19 72 7.6 28% 29 37 128 97.36 79 (75) A plc 7.9 18% 86 52 193% 42% 95 89 13.4 42% 64 50 142 74.78

Intercontinental Hotels Group 80 (81) RELX plc 11.8 23% 96 62 -25% 11% 31 56 40.2 70% 97 68 170 83.62 55 (5) 2.4 32% 32 76 -9% 27% 40 80 8.8 100% 37 89 200 82.33 plc

81 (23) Aviva plc 5.2 9% 72 38 21% -1% 65 38 13.2 19% 62 31 119 97.13 56 (52) Halma plc 3.1 42% 42 87 39% 14% 71 59 7.6 91% 31 83 191 96.74

82 (79) Associated British plc 4.2 4% 65 30 -34% -3% 25 34 13.2 -7% 63 11 93 98.35 57 (64) Admiral Group plc 0.4 16% 0 47 -1% -18% 47 15 1.1 82% 0 77 182 90.36

83 (89) 9.7 20% 92 55 21% 15% 64 62 29.6 39% 92 46 139 94.91 58 (33) Fresnillo plc 0.8 19% 1 54 0% 26% 49 79 2.5 92% 2 84 192 99.79

84 (62) Carnival plc 22.4 22% 98 59 1426% -14% 99 19 29.3 81% 91 76 181 92.40 59 (24) Smurfit Kappa Group plc 2.2 38% 29 82 -52% 9% 7 52 9.1 46% 41 53 146 88.20

85 (3) Barclays plc 3.5 -8% 49 8 90% 0% 86 41 9.7 -11% 47 7 89 95.96 60 (14) Rolls-Royce Holdings plc 1.9 29% 17 71 151% 61% 91 95 4.3 3% 7 20 103 98.87

The Royal Bank of Scotland 86 (68) plc 5.6 9% 77 36 5% -1% 54 40 15.8 56% 72 60 156 96.58 61 (71) 1.5 24% 11 65 -41% 47% 18 90 7.5 -30% 27 1 70 99.18 Group plc

87 (31) Direct Line Insurance Group plc 5.7 8% 78 33 5% -40% 55 5 16.0 58% 73 61 158 76.58 62 (60) Persimmon plc 2.2 63% 30 98 16% 28% 60 81 6.3 105% 16 90 205 51.48

88 (17) Experian plc 5.9 5% 79 31 31% -8% 67 30 14.5 60% 67 63 160 81.37 63 (13) Glencore plc 1.1 43% 5 88 9% 111% 58 98 3.4 41% 4 47 141 98.94 Misaligned 89 (97) BP plc 8.8 10% 88 40 -33% 18% 26 66 31.4 56% 94 59 156 96.42 64 (12) Antofagasta plc 1.3 52% 7 95 17% 89% 61 97 3.6 39% 5 45 139 99.08

90 (47) Imperial PLC 4.0 -6% 58 9 18% -40% 62 4 14.5 29% 68 40 129 98.48 65 (63) Hargreaves Lansdown plc 1.0 52% 3 93 -24% -1% 32 37 4.3 92% 6 85 192 96.57

91 (30) British American Tobacco plc 11.1 13% 94 43 134% 1% 90 43 23.9 62% 89 65 162 75.68 66 (40) easyJet plc 1.0 54% 4 96 -77% 47% 1 91 7.5 -1% 26 15 99 99.58

92 (1) Wm Morrison Supermarkets plc 5.0 -2% 69 16 191% 12% 94 58 8.6 33% 36 41 133 84.66 67 (96) HSBC Holdings plc 7.5 24% 84 63 -4% 30% 45 86 24.0 52% 90 55 152 97.00

93 (90) Shire plc 3.8 -16% 56 3 -51% -20% 8 13 19.6 -13% 84 6 87 89.13 68 (78) Vodafone Group plc 8.0 25% 87 66 63% 20% 79 71 18.9 24% 82 35 124 97.12

94 (69) Reckitt Benckiser Group plc 9.3 3% 89 27 -42% -20% 15 12 35.2 42% 96 49 142 89.03 69 (57) Informa plc 4.1 9% 61 39 102% -25% 88 11 9.4 83% 45 79 183 93.21

95 (55) Melrose Industries plc 42.8 9% 100 37 4508% -3% 100 33 44.7 344% 98 99 444 77.13 70 (36) National Grid plc 3.1 -3% 38 14 41% -10% 72 23 9.0 10% 39 23 110 96.94

96 (82) GlaxoSmithKline plc 5.0 -11% 70 6 -29% -16% 28 16 16.5 14% 74 28 114 90.41 71 (34) SSE plc 2.5 -10% 33 7 50% -9% 74 26 6.8 -3% 18 13 97 97.85

97 (37) Sky plc 10.4 2% 93 26 -9% -25% 38 10 31.5 20% 95 32 120 70.99 72 (22) RSA Insurance Group plc 5.1 11% 71 42 106% 12% 89 57 11.2 55% 55 58 155 96.63

98 (50) CRH plc 7.6 -4% 85 12 184% -35% 93 7 18.0 84% 78 82 184 60.31 73 (95) Lloyds Banking Group plc 5.2 14% 73 44 -43% 16% 13 64 20.4 1% 86 17 101 79.22

99 (76) WPP plc 15.5 -23% 97 1 -78% -43% 0 2 132.1 10% 100 24 110 72.75 74 (87) Tesco PLC 3.7 2% 55 24 -8% 23% 42 75 12.0 11% 58 26 111 96.64

• Not listed in the table above is FTSE 100 company Scottish Investment Trust plc, which did not have a CEO in 2017 75 (25) BT Group plc 2.5 -22% 34 2 -56% -43% 6 3 9.8 -24% 48 3 76 65.84 • Paddy Power and Mediclinic did not have data for 2015 and were excluded from the ranking position of 2015 and are marked as (-) • Deviation numbers were rounded to the second decimal places

cglytics.com 14 Getting Ready for the Next Proxy Season

Appendix Our methodology on Total Realised Compensation explained

The realised compensation includes all realised components of compensation in the year of interest. It is defined as the sum of total indirect compensation realised and total direct compensation realised for one year. It consists of base salary + benefits + other compensation + bonus + deferred cash bonus + deferred share bonus + value of performance/restricted shares vested + value of performance/restricted options exercised. Total realised pay is calculated based on performance indicators that have been met during the performance period. Most companies clearly disclose the performance period and vesting period, and the percentage that will be paid in the next year. For example, for shares that will vest on March 31, 2016 but where the performance period ends at December 31, 2015, shares are included in realised compensation for the financial year 2015. When the company doesn’t disclose the average share price over the last quarter, we use the company year-end share price to calculate the value of the vested multiyear share packages. In line with UK practices, adjustments are usually made in the following year when the company disclose the exact share price on which the shares vested. For options, we calculate realised pay when the options have actually been exercised. In the event there were two CEOs in a year for a company, for example due to a change in CEO, we explored the companies on individual basis and annualized compensations depending on the issue at hand to make the total realised compensation as realistic as possible.

Total Shareholder Return (TSR)

Total shareholder return is defined as the total return of a stock to an investor. It combines annual changes in stock price and dividends paid, and is expressed as an annualised percentage. This is calculated over one-year (1Y) and three-year (3Y) period. The growth in 3Y TSR is calculated by the percentage points of difference between the latest year and 3 years prior. Please note that all figures have been rounded up in the table outlining the CEO pay for performance analysis.

CGLytics - FTSE100 CEO P4P Overview explained

The methodology was based on a degree of alignment between +20% or -20%. Companies that fell between this range are considered to be strongly aligned and were ranked from lowest to the highest with reference to their degree of deviance from the regression line. The next companies in the overview are those with their degree of deviation above 20%. These companies are considered to have a more conservative policy, with performance ranking higher than compensation. At the bottom of the ranking are the companies whose degree of deviation falls below -20%. The companies that fall in this category are considered to have an aggressive policy, with compensation ranking higher relative to performance (TSR). All companies were ranked from lowest to highest level of deviation from the regression line with reference to 2017 compensation. The ranking also shows how the FTSE 100 index has changed relative to 2015 using the methodology explained above.

Investment return of GBP 100

This figure looks to calculate how much a GBP 100 company investment would be worth over a period of time by indexing the TSR over multiple years.

Pay for Performance analysis

We conducted a study on CEO realised compensation to determine degree of alignment relative to peers in the FTSE 100 on a 1 and 3 years basis. The degree of alignment is determined by subtracting the compensation rank from the performance rank within a scope of +20% or -20%. Results obtained on either side determine a more generous or a conservative remuneration policy. Therefore, for the three years’ study, the percentile rank is calculated by the Total Realised Compensation over the period subtracted from the sum of the period TSR performance.

Definition of financial years

FTSE 100 companies have different year end dates. The most common year end dates are displayed below; 31/12, 31/3, 31/7 and 30/9. The main rule applied is that in a specific year, financial year end dates until 31/3 is reported as financial year of the previous year. All financial year end dates after 31/3 are reported as the year in which the financial year ends.

cglytics.com 15 About Us CGLytics provides powerful data analytics and actionable intelligence on the “G” of Environmental, Social & Governance (ESG). Our solutions are designed to help corporations, institutional investors, financial institutions and professional services firms to efficiently and effectively manage the increasing challenges they face in reviewing and addressing corporate governance risks and associated decision-making. CGLytics provides an integrated cloud-based, data technology solution, to independently analyze data on the value creation and governance practices of leading listed companies across the globe, in a single convenient solution. CGLytics is a signatory to the UNPRI.

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